Reason Foundation

Minimum Wage Kills the $5 Footlong in Frisco

As a rule, I hate the Subway $5 Footlong commercials. I give all due deference to the ad agency that came up with the promotion. From a business perspective it is brilliant advertising. Though the "catchy" nature of the tune is why I (and I'd imagine many others) despise them. Also, I am constantly frustrated at the workers in the Subway near our Reason office in DC for being so stingy with the black olives. (Who eats just four black olive slices?)

Nevertheless, annoyingly memorable commercials aside, that is no reason to attack and get rid of the $5 Footlong—which is effectively what San Francisco has done by raising the minimum wage to $10.24 this year. Here is the story from a local Bay Area NBC affiliate:

The sandwich-making chain stopped selling the five-dollar footlongs in San Francisco due to the "high cost of doing business," according to SF Weekly. Signs posted at Subway sandwich shops sadly inform San Francisco patrons -- we hear Willie Brown is a big fan -- that "all SUBWAY Restaurants in SF County DO NOT PARTICIPATE IN Subway National $5.00 Promotions," according to the newspaper. [...]

Apparently, the city's new minimum wage, raised to $10.24 as of Jan. 1, make $5 footlongs an impossible business model.

This is not really surprising. The economics on the unintended consequences of the minimum wage have long been established. It is almost self evident: just ask why we should not raise the minimum wage to $500 or $1,000 a hour and you get the same answer as to how $10.24 per hour can be unsustainable.

Proponents of minimum wage laws suggest that businesses should just eat the extra cost, since those rich fat cat owners of capital and industry can afford it, so that the lower class folks can earn a "livable" wage (a term highly open to interpretation). But as Subway is apparently demonstrating, at a certain point you can't run at a loss. And so the costs are getting passed on to the customers of Subway in San Francisco.